The desire to retire at an earlier age is making a comeback, as an increasing number of younger Americans want to retire before the age of 65, a new report finds.
In 2020, more consumers (39%) anticipate retiring before age 65 than in any other year since in 2010 with 18% of those saying they plan to retire by age 59. And nearly 4 in 10 (38%) of current U.S. pre-retirees currently under age 54 and an estimated 11.5 million households with the primary wage earner under age 55 say they “aspire to retire by 55.”
This can hold important implications for target date funds, education and other options, such as the so-called Rule of 55, Hearts & Wallets notes in Ideas for Enhancing Advice as Income Sources Evolve and Target Dates Move Younger.
Conversely, the report finds that consumers ages 55 to 64, commonly considered “pre-retirees,” are surprisingly diverse in their retirement wishes. Although this age group makes up the largest percentage of pre-retirees of all age groups, only 24% of those 55 to 64 consider themselves pre-retirees, 32% do not anticipate stopping full-time work within five years and 44% are already retired.
Hearts & Wallets further notes that the desire for younger retirement ages coincides with the trend of more Americans wanting to work as long as possible. At the same time, interest in part-time work declined.
More Americans want to stop full-time work at a certain age—now at 34%, up 2 percentage points from 2019. By contrast, a large segment of Americans wants to “work full time as long as health permits,” at 53%, up 3 percentage points from 2019. Those who want to work part-time now stands at 13%, dropping 4 percentage points from the prior year.
“The pandemic has disrupted many lives and jobs,” notes Laura Varas, CEO and founder of Hearts & Wallets. “One repercussion is a renewed appreciation for building financial security and planning for possible end of work.” Varas suggests that firms should assist consumers in understanding their personal work viability and provide support to achieve retirement goals without making assumptions about target dates, either earlier or later than the traditional mid-60s.
Workplace Plan Growth
One positive finding is that participation and saving into employer-sponsored retirement plans are up in 2020. According to the findings, 62% of working households report someone in their household is eligible and participating in an employer-sponsored retirement plan, up 9 percentage points from the previous year. In addition, nearly a third of households (31%) devote one third or more of annual saving now to workplace plans.
Not surprisingly, “save for retirement” and “get the company match” are the main reasons for participating. Having “reliable choices screened by my employer” is less important nationally, but relatively more motivating to Black participants in comparison to Asian or white participants, Hearts & Wallets notes.
Retire-by-55 Segment
According to the report, an interesting segment is households with breadwinners under 55 who say they want to stop full-time work by age 55. These households are well positioned in some ways, but may need an assist to achieve their early retirement goal.
According to Hearts & Wallet, these households are more likely to use various investment products, have lower student debt, spend less on housing and are more open to personal financial advice. Yet, most of these households do not have at least $100,000 in investable assets. And only one in five (18%) of this segment is saving 15%-plus of income. As such, their savings rate and other financial behaviors, such as carrying credit card debt, suggest an early retirement goal may be unrealistic without behavioral change, the report observes.
Retirement Funding
Future retirees also anticipate a higher number of income sources than current retirees. Nearly half of future retirees anticipate four or more sources of income, with even more sources for wealthier future retirees. The average retiree household has 2.4 sources of income. According to the report, the more income sources consumers anticipate, the more value they see in paying for financial advice.
“Firms should understand which sources matter most to individual consumers,” says Amber Katris, Hearts & Wallets Subject Matter Expert. “Consumers with a higher number of income sources are more receptive to paying for financial advice. Consider assets-to-income ratios, which are more concrete and easier to understand than replacement rate projections.”
Findings in the study are drawn from the Hearts & Wallets Investor Quantitative Database, with the latest survey wave fielded in August 2020 among 5,920 U.S. households.
